Key Takeaways
- Major US stock indices ended lower on Wednesday, affected by mixed corporate earnings reports and escalating trade tensions between the US and China.
- A weaker-than-expected revenue forecast from Texas Instruments negatively impacted semiconductor stocks, while Netflix’s disappointing earnings also weighed on the market.
- Positive corporate results from Intuitive Surgical and Capital One provided some support, but overall market sentiment remained cautious.
- Concerns regarding potential US export restrictions to China and the ongoing government shutdown added to market uncertainty.
- Market participants are closely watching upcoming US-China trade talks and continuing Q3 corporate earnings reports for future market direction.
Market Performance on Wednesday
Major US stock indices concluded Wednesday trading in negative territory. The S&P 500 Index declined by 0.53%, the Dow Jones Industrials Index fell 0.71%, and the Nasdaq 100 Index saw a drop of 0.99%. This broad market pressure was influenced by significant stock movements within crucial sectors.
📍 The semiconductor industry experienced a notable sell-off after Texas Instruments (TXN) issued fourth-quarter revenue projections that fell short of analyst expectations. The company’s forecast ranged from $4.22 billion to $4.58 billion, with the midpoint below the consensus estimate of $4.50 billion. Consequently, ON Semiconductor (ON) fell more than 5%, and Microchip Technology (MCHP) dropped over 4%. Other chipmakers including Advanced Micro Devices (AMD), Marvell Technology (MRVL), and Intel (INTC) closed down by more than 3%. Analog Devices (ADI), KLA Corp (KLAC), ARM Holdings Plc (ARM), GlobalFoundries (GFS), Lam Research (LRCX), Micron Technology (MU), and NXP Semiconductors NV (NXPI) all posted losses greater than 2%.
Netflix (NFLX) also contributed to the market’s decline, with its stock price plunging over 10% after reporting third-quarter earnings per share (EPS) of $5.87, significantly below the consensus estimate of $6.94.
💡 Amidst the broader downturn, some corporate earnings reports provided pockets of strength. Intuitive Surgical (ISRG) surged more than 13% after raising its full-year forecast for Da Vinci procedure growth. Capital One Financial (COF) saw an increase of over 1%, reporting Q3 adjusted EPS of $5.95, significantly higher than the consensus estimate of $4.39.
Trade Tensions and Economic Headwinds
Investor sentiment took a further hit during the afternoon trading session upon reports of potential broad US restrictions on exports to China that utilize US software. This move is reportedly a response to China’s recent limitations on rare earth exports, intensifying concerns over trade relations.
Market participants are closely monitoring developments in US-China trade negotiations. President Trump has reiterated his stance, threatening to increase tariffs on Chinese goods if a trade deal is not reached by November 1. A significant meeting between President Trump and Chinese President Xi Jinping is anticipated next week on the sidelines of the Asia-Pacific Economic Cooperation conference in South Korea, which could shape future trade dynamics.
In economic data, US MBA mortgage applications experienced a slight decline of 0.3% for the week ending October 17. Purchase mortgage applications were down 5.2%, while refinancing applications saw an increase of 4.0%. The average 30-year fixed-rate mortgage edged down 5 basis points to 6.37% from the previous week’s 6.42%.
Government Shutdown and Earnings Season Dynamics
The ongoing US government shutdown, now in its fourth week, continues to cast a shadow over market sentiment and has led to delays in the release of crucial economic reports. This shutdown has postponed the release of data, including weekly initial unemployment claims and the September payroll report.
The Bureau of Labor Statistics (BLS) has rescheduled the release of the September consumer price report for this Friday. The White House has cautioned about potential widespread employee dismissals in government programs not aligned with President Trump’s priorities if the shutdown persists. Bloomberg Economics estimates that approximately 640,000 federal workers could be furloughed, potentially increasing jobless claims and pushing the unemployment rate upwards.
📊 This week’s market focus remains intently on the ongoing Q3 earnings season. Corporate earnings expectations are generally positive, providing a supportive backdrop for stocks. Data from Bloomberg Intelligence indicates that 85% of S&P 500 companies that have reported thus far have exceeded forecasts, which could mark the best quarter since 2021. Furthermore, over 22% of S&P 500 companies providing Q3 guidance are expected to surpass analyst predictions, the highest figure in a year. However, projected Q3 profit growth stands at +7.2% year-over-year, the lowest in two years, with Q3 sales growth anticipated to slow to +5.9% year-over-year from 6.4% in Q2.
⚡ The markets are largely anticipating a 25 basis point rate cut at the upcoming FOMC meeting on October 28-29, with a 97% probability priced in.
International Markets
Overseas stock markets also experienced declines on Wednesday. The Euro Stoxx 50 closed down 0.84%. China’s Shanghai Composite saw a slight decrease of 0.07%, and Japan’s Nikkei Stock 225 finished down 0.02%.
US Stock Movers
Stocks with exposure to cryptocurrency also retreated as Bitcoin’s price fell by more than 2%. This impacted Coinbase Global (COIN), Galaxy Digital (GLXY), MARA Holdings (MARA), Riot Platforms (RIOT), and MicroStrategy (MSTR), all closing down by more than 4%.
Lennox International (LII) was among the biggest decliners in the S&P 500, down over 10%, after it lowered its full-year EPS forecast to $22.75-$23.25 from a previous range of $23.25-$24.25.
AST SpaceMobile (ASTS) saw its stock price drop by over 10% after announcing a private offering of $850 million in convertible senior notes due 2036.
Manhattan Associates (MANH) closed down more than 4% after reporting Q3 remaining performance obligations (RPOs) of $2.077 billion, slightly below the consensus of $2.088 billion.
Mattel (MAT) experienced a decrease of more than 3% after reporting Q3 net sales of $1.74 billion, which was weaker than the consensus forecast of $1.84 billion.
Commercial Metals (CMC) fell more than 3% following a downgrade from buy to hold by Jefferies.
📍 Avery Dennison (AVY) closed up more than 9% after reporting Q3 adjusted EPS of $2.37, surpassing the consensus of $2.33. The company also announced a partnership with Walmart, whereby Walmart will implement Avery’s sensor technology for RFID-enabled labels in its fresh food departments.
Energy producers and service providers saw a rally on Wednesday, buoyed by a more than 2% rise in WTI crude oil prices to a one-week high. Halliburton (HAL) climbed over 4%, and Marathon Petroleum (MPC) gained more than 3%. Phillips 66 (PSX), Occidental Petroleum (OXY), and Valero Energy (VLO) all closed up by more than 2%. Other energy companies, including Baker Hughes (BKR), Chevron (CVX), ConocoPhillips (COP), Devon Energy (DVN), and Exxon Mobil (XOM), posted gains of over 1%.
Amphenol (APH) rose more than 3% after reporting Q3 EBITDA of $1.93 billion, exceeding the consensus estimate of $1.64 billion.
Hilton Worldwide Holdings (HLT) increased by over 3% after revising its full-year adjusted EBITDA guidance upwards to $3.69 billion-$3.72 billion from $3.65 billion-$3.71 billion, surpassing the consensus of $3.68 billion.
Avadel Pharmaceuticals (AVDL) climbed more than 3% following the announcement that Alkermes plans to acquire the company for approximately $2.1 billion, or $20 per share.
Expert Summary
Wednesday’s trading session saw major US stock indices finish lower, influenced by weak guidance from companies like Texas Instruments and Netflix, alongside geopolitical concerns tied to US-China trade relations and the ongoing government shutdown. Despite positive earnings reports from Intuitive Surgical and Capital One, broader market sentiment remained cautious. Investors are now looking towards upcoming trade talks and the continuation of the Q3 earnings season for potential catalysts.